20 Things Every Small Business Should Know About Invoices And Invoicing
Written by Mark Williams
If you’re about to start your own business and sell on credit, obviously, you’ll need to invoice your customers. But, what information must you include, when should you issue invoices and how should you handle late-payers or non-payments?
If you already run your own business, the following information might better enable you to maintain healthy cash flow. So, what should small-business owners know about invoices and invoicing?
Invoice payment terms
1. You decide your invoice payment terms, you customers can’t choose how and when to pay you. And don’t allow them to ignore your invoice payment terms.
2. Although it may be expected, you don’t have to grant any credit. You could decide to grant credit only when your relationship with the customer is better established.
3. As explained on government website gov.uk: “Unless you agree a payment date, the customer must pay you within 30 days of getting your invoice or the goods or service [supplied].”
4. Some businesses have invoice payment terms of seven days, while others grant 10 or 14 days. In many cases, 30 days is usual, although large organisations can expect 60 or even 90-day invoice payment terms.
Invoice content
5. If any information is missing or incorrect, it can lead to invoice payment delays. You’ll also need to produce and provide a new invoice containing the correct information.
6. If a customer gives you a purchase order, include it in your invoice, as it should make the invoice payment process smoother. Many customers won’t process your invoice unless you include their PO number.
7. Your invoice should include:
your business name, address and contact details
the customer’s name and address
the name and job title of the purchaser (if applicable)
the customer’s PO number (if applicable)
your unique invoice number
a full description of goods/services supplied
date order was placed
date invoice was issued
a break down of all costs/charges (excluding VAT if applicable)
details of how much VAT has been charged (if applicable)
total cost (including VAT, if applicable)
your registered VAT number, if your business is VAT-registered
your registered number and office if running a limited company.
8. So that customers can pay you, detail your business bank, business bank account name, sort code and business account number. If selling to overseas customers, include IBAN/BIC/SWIFT numbers (speak to your bank to get these).
9. It’s advisable to include a polite reminder of your payment terms, stated clearly in your invoice (eg “Please pay within 30 days”).
10. For organisation and identification purposes, each invoice should have a unique invoice reference number, obviously, increasing upwards by one each time you issue a new invoice.
Invoice layout
11. Your invoices should look as professional as possible, using your corporate identity. Simplicity is advised, because your invoices should be easy to read and understand.
12. Include the word “Invoice” at the top of your invoice, so that recipients immediately know what they’re looking at. You don’t want them to think it’s a quote, estimate or credit note.
13. Accounting software packages and apps can enable you to quickly produce, send and store professional-looking invoices.
Late payment
14. Late invoice payment remains a big problem for small businesses. About a third of payments are late and big businesses are most likely to pay small businesses late, according to the Federation of Small Businesses.
15. Your credit-control/invoicing system should automatically tell you, a few days before an invoice is due for payment. Sending a polite email reminder can ensure that you’re paid on time.
16. If you sell to private-sector customers – not consumers or public-sector clients – you can charge them “statutory interest” of 8% plus the Bank of England base rate (0.75%) per day for overdue invoices. If you apply interest, you must send a new invoice to the customer, detailing interest charges. Your business can also claim debt-recovery costs for unpaid invoices.
17. When chasing up overdue invoices, phoning customers is advised, because emails are easier to ignore.
Non-payment of invoices
18. Before starting legal action against a customer for non-payment of an invoice, first consider whether the debt is worth pursuing in court. Mediation can provide a cheaper solution if the invoice is disputed.
19. As a first step, you can send a “Letter Before Action” telling the customer that you intend to take them to court if they don’t pay the invoice within a specific period (eg seven days).
20. Litigation should always be a last resort, but for debts worth more than £750, you may be able to issue a statutory demand for payment. If this fails, you could make someone bankrupt, if owed £5,000 or more by a sole trader or a member of a partnership, or get a company wound up (liquidated) if you and any other creditors are owed £750 or more.
Mark Williams is a freelance editorial consultant, editor, journalist and SME content specialist with more than 25 years’ experience. He has written for The Guardian, numerous leading brands and award-winning magazines and websites. Visit www.markiwilliams.com